KL Kepong expects to replant 3,000ha to 4,000ha in Sabah and plans to plant about 1,000ha to 1,500ha in Liberia.
KUALA LUMPUR: Plantation company Kuala Lumpur Kepong (KLK) has allocated RM850mil as capital expenditure for FY17, down by 7% on-year, says PublicInvest Research.
It said on Thursday KLK plans to use about RM500mil for new planting expenditure while the remainder will go to maintenance capex for its oleochemical business.
PIVB Research said it met up with KLK’s management recently and came away with a steady view on the company’s outlook.
“Despite seeing strong crude palm oil (CPO) price performance, we think current valuation remains unattractive at 23 times forward price-to-earnings ratio (PER).
“Hence, we maintain our Neutral call but with a higher target price of RM24.90 (up from RM23.46) after rolling over our valuations to FY18,” it said.
The research house said that KLK, after experiencing an 8.1% drop in FY16 fresh fruit bunches (FFB) production, expects to see a recovery in FY17 with a 3%-5% growth.
The growth will mainly come from Kalimantan Tengah, which has seen a dip for two consecutive years. Malaysian production may be struggling to see a recovery due to a lagged effect of El Nino’s impact last year.
Despite expecting an increase in fertiliser and labour expenses, the company targets to keep its production cost (excluding palm kernel credit and milling costs) at RM1,350/mt in FY17, supported by a recovery in FFB production.
KLK is expected to see an additional 6,000ha mature area this year. Meanwhile, it expects to replant 3,000ha to 4,000ha in Sabah and plans to plant about 1,000ha to 1,500ha in Liberia.
In Indonesia, the group plans to help expand the plasma planted area while no new planting to be carried out for its own area due to high carbon stock studies.
“Specialty oils & fats will see stronger contribution, riding on the tight RSPO oil supplies, which entitle them to more lucrative premium of US$90 a tonner compared to US$50 a tonne in the past.
“On the other hand, oleochemical will continuously face stiff competition from petrochemical though crude oil prices have seen a strong rebound lately. In addition, it will also experience heightening raw material cost due to escalating PKO prices.
“Property unit plans to roll out some small launches soon. With the commencement of MRT Line 1, we believe it will augur well for its property sales given the accessibility to public transportation.
“Nevertheless, management expects the property demand to pick up in 2018, which will see a turnaround for its property arm,” it said.
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